Making Money from YouTube

Yesterday’s post about YouTube elicited some interesting comments and e-mails in my inbox… people wondering how one can make money by uploading videos to YouTube. As I wrote yesterday, more than 48 hours of video are uploaded to YouTube every minute. So your chances of cutting through the noise aren’t good at all. That said, I’m a firm believer in the old saying “Talent will always win out.” Talent, in the case of YouTube could be defined as anything adorable, wacky, shocking, hilarious or just plain different. If you look at the most viewed videos, they invariably fit into one of those categories.

So let’s say you’ve managed to capture a moment that fits into one of those categories. And let’s say that there are no copyright infringements, meaning: you aren’t using music you don’t own the rights to, or other copyrighted material that YouTube expressly prohibits in their Terms of Service. Assuming all that, how do you make money off your video?

Here’s the business model YouTube employs, which allows everyday folk like you and me to disrupt the traditional Hollywood models of production, distribution and monetization.

1. When a video on YouTube reaches a certain number of views, meaning it’s trending over a short period of time or accumulating views via the long tail (some vids explode years after they’ve been uploaded), YouTube will reach out to the channel owner (a channel on YouTube is just a unique user account associated with an e-mail address) and ask to partner with him/her.

2. At that point, the channel is now able to share in YouTube’s revenue stream. YouTube makes money by serving up ads. Some ads appear before the video plays. These are called pre-roll ads. Some of the pre-rolls can be skipped after 5 seconds, others you have to watch in their entirety before a video plays. When YouTube first launched, there were no ads. Over time, they’ve slowly introduced more and more pre-rolls and users don’t complain too much because, hey, they’re pretty short by comparison to TV ads and many can be skipped by clicking a button. There are also display ads that appear over the lower third of the video sometimes, toward the bottom of the viewer. These, too, can usually be closed with a click. And there are also ads on the actual channel page. Together, all these ads blend and add up to an average CPM of $2.

3. CP-what? CPM or cost-per-thousand. It’s actually cost per mille, the Latin for thousand. What this means is: Every time 1,000 people view a video, YouTube pays you $2. We won’t get too technical here and define what a “view” is because there are different rules for different videos, but basically when that view counter moves up a tick from 234 to 235, YouTube counts it as one view. So if a video is viewed 2,000 times, the channel is paid $4. Presumably, YouTube is making about the same off the video as the channel is, so the gross revenue from the video is probably more like $4 per 1,000 views.

4. This may not seem like much money, but when you consider that some videos are being viewed millions of times, it starts to add up. Well-known YouTube channels, like FreddieW, upload videos every week. At the moment, his channel has close to 354 million views (and he has more than one channel!). Doing the math then, 354 million divided by 1,000 = 354,000 x 2 = $708,000. So it’s through many videos and many channels that YouTubers are able to make a nice living off their work.
5. Okay, so you’re probably not going to be the next FreddieW. But still, a single video hit, like Charlie Bit My Finger, can also make a good deal of money. As I wrote yesterday, that video has been seen about 367 million times, which translates to about $700,000. Enough, perhaps, to put little Charlie and his brother through college.